At times like these, when the sky is on fire and cracks are opening underneath you, it is important to remember that things could be worse and history suggests you will trade solvently again.
But right now, the news is bleak for everybody associated with Derby County and there is no point sugarcoating it.
Since Friday night’s memo about the coming apocalypse, when Derby announced the club and all the subsidiary companies intended to appoint administrators, The Athletic has been speaking to people with knowledge of the club’s financial position and they have not been very upbeat.
“It’s 50/50 they get liquidated,” said one source, while another said: “I can’t see how they get out of this — they’re strawberry floated.”
The picture they painted in such depressing tones was one of a club that is worth less than nothing. Much less.
They said any prospective buyer would need to shell out more than £50 million simply clearing Derby’s debts before spending a penny on rebuilding the club and putting a competitive team on the park.
This is because the club has football creditors, who must be paid up to £10 million in full, as well as secured debt of £20 million owed to an American private equity firm and a tax bill of almost £30 million.
Derby declined to comment when contacted by The Athletic.
Until late last year, that last bill would have not have been such a cause for alarm to a bidder as it would have been added to the pile of unsecured debt and paid off with pennies in the pound.
HM Revenue and Customs has been complaining about that for years and the government’s post-pandemic need for rebalancing its books meant somebody in power finally heard the taxman’s pleas. The Finance Act 2020 gave tax debt preferential status in insolvency cases. At least two-thirds of Derby’s tax arrears must now be settled in full, just like the money they still owe to other football clubs.
For most of the last 24 months or so, industry sources have been saying that somebody, somewhere, would buy Derby, because the club has too many fans, too much history, and too much potential to fail.
They are not so sure of that now.
Curtis Davies had been the hero of the hour, the man to help bring Derby momentary respite amid suffering with a 2-1 victory over Stoke City on Saturday.
The veteran defender also delivered a succinct assessment of the events that had bundled Wayne Rooney’s team into the boot of a car and sped them to the cliff edge. “Madness,” said Davies.
It has taken half a decade for Derby to become English football’s worst financial basket case but Friday night’s news was abrupt, brutal and devastating. Administration, it was decreed by owner and chairman Mel Morris, was unavoidable. At a club where Morris estimates to have lost £200 million of his personal fortune, even Derby’s points tally will soon be in the red.
The EFL confirmed their intention to hit Derby with the mandatory 12-point penalty just over an hour after the club had shocked its players, staff and supporters by confirming it had filed a notice to appoint administrators. Throw in the historic EFL charges, still to be finalised, and it could be weeks before Derby are back to square one. League One is already eying up a club last seen in the third tier in 1986.
Morris was absent from the win over Stoke but attempted to justify his actions in a joint interview with the local paper and BBC radio station on Sunday. There were apologies and remorse.
“It’s tragic, no question,” he accepted. “Gut-wrenching — one of the most difficult decisions I’ve ever had to make. Was it taken with the best long-term interests of the club? Very probably.”
Rooney, who has been pushing water uphill since becoming Derby’s manager a year ago, was honest enough to reveal he first heard the news via television. His players were also caught unaware.
The Athletic has been told one player shared the club statement with the squad’s WhatsApp group shortly after the announcement at 8.30pm. The accompanying text read: “12-point deduction then, is it, lads?”
There was silence from the club’s hierarchy throughout the night and into Saturday morning ahead of the team’s pre-match meeting at noon. “Shocking,” was the observation of one source close to the dressing room. Another was less taken aback by events. “Doesn’t surprise me, to be honest.”
Among the squad, there has typically been sympathy for Morris, the local man with Derby in his heart, but that has eroded in recent days.
Chief executive Stephen Pearce had volunteered to speak to players and offer an apology for the lack of answers but Rooney declined, preferring to limit the distractions in the hours before the game.
That, at least, had the desired effect. Derby fought manfully for the three points, with Davies among the goalscorers. “Did we see administration coming? No,” he told the club’s media channels. “Especially overnight on a Friday before a game.”
Players were given Sunday and Monday off, a decision taken ahead of the weekend win, and will face the same uncertainty as fans and staff when reporting to the club’s Moor Farm complex for training on Tuesday. The Professional Footballers’ Association (PFA) is understood to have reached out, offering early advice to Derby’s beleaguered squad.
Rooney is said to have been an impressive figurehead in the crisis to date. In the wake of the “admin bomb”, as one player put it, the manager was aiming to deliver updates to his squad on Tuesday ahead of a weekend trip to Sheffield United. The expectation from within the dressing room is that Rooney intends to ride out the storm.
“This doesn’t change anything with him,” says one well-placed source. “He said to the lads ahead of the Stoke game that he wasn’t going to leave them in the trenches. He said he’ll fight with them and stand up for them. He said he could’ve walked weeks ago but this is very important to him.”
The greatest sadness within the club is for the office staff whose jobs have been plunged into doubt. Redundancies are inevitable as the administrators cut costs. Emotions ran high before and after beating Stoke, with several staff thanking players for showing a united front.
The only internal correspondence over the weekend was an email sent on Saturday morning, asking for employees to carry on as normal. It added meetings would come this week. “Hopefully we can preserve as many jobs as we can,” said Morris on Sunday.
Under Morris, Derby aimed for the stars but wound up in the gutter. Play-off defeats at the semi-final stage came in 2016 and 2018 before coming closer still in 2019, beaten by Aston Villa in a Wembley final it transpires they could not afford to lose.
That was the year Morris began to look for a way out but the damage was already done. The club’s annual wage bill had been allowed to climb to £47.8 million for 2017-18, according to the last set of accounts filed at Companies House. That equated to 161 per cent of the club’s turnover.
Morris looked for ways to stay on the right side of the EFL’s ceiling for permitted losses, £39 million over three years. Costs were hived off into new subsidiaries, giving Derby a tangled corporate structure, and then, two days before the end of the accounting period for the 2017-18 season, he sold Pride Park to another new company he controlled for £81 million.
It was a lever other Championship spendthrifts would pull — Aston Villa, Birmingham City, Reading and Sheffield Wednesday — but nobody paid nearly as much for their own home as Morris.
Staggered by Derby’s valuation of the stadium, the EFL charged Derby for breaching their rules in January 2020 but the club was cleared of wrongdoing by an independent panel six months later. That was only half the story, though, as Derby also faced a second charge for their novel approach to accounting for transfers. The argument over that one went into injury time of extra time, with an appeal panel eventually ruling in the EFL’s favour four months ago. Derby were fined £100,000 and forced to submit restated accounts for the three seasons between 2015 and 2018.
Fellow EFL clubs have not been amused. “I’ve never seen a club behave so poorly for so long,” one EFL executive told The Athletic. “They’ve looked for every possible loophole and tried every trick in the book to drag this out.
“I keep hearing it’s unfair to punish the fans but what about the fans of all the other clubs that didn’t breach the rules?”
Having asked for — and been granted — more time to file those restated accounts, Derby eventually complied with the panel’s judgment last month but failed to provide all of the financial information the EFL requested. This is related to the business plan that any club in Derby’s position is expected to agree with the league for the next two seasons. The arguments over that have just been added to the pile.
But the fiercest dispute between club and league over the last month has been how to finally draw a line under Derby’s overspending in the first half of the Morris era. Now the EFL has numbers based on the amortisation policy — the principle of gradually writing off what it cost you to buy an asset over time — used by every other club in the league, it has asked Derby to accept a 12-point penalty, with three points suspended, or we do the whole dance again.
Derby, unsurprisingly, disagree. Morris thinks the overspending is marginal and worth only four points off this season’s total. He is also understood to be unhappy with the idea that any further trouble could result in suspended points being activated and fresh charges. He believes it is one or the other and anything else is double jeopardy. The EFL believes he might not have read the rulebook the clubs approve every season carefully enough.
It hardly matters now but Derby have been under a transfer embargo for months, owing to four separate charges. One of them relates to the club being in default with payments to HMRC. The outstanding tax bill is now understood to be close to £30 million: trouble in anybody’s book.
Deprived of matchday revenue, lots of EFL clubs withheld payroll taxes and VAT during the pandemic but all of them, apart from Derby, have agreed time-to-pay deals. The taxman does not give football clubs any discounts but he usually offers payment plans. Not this time.
Morris has claimed administration would have been avoided without COVID-19. The club’s statement blamed a £20 million shortfall because of the season played behind closed doors and complained about the EFL’s refusal to let Derby have one of the £8.3 million loans it has offered to other Championship clubs so they can pay their tax bills.
The EFL was not going to let that one go unchallenged. “The league is disappointed with the comments made by the club in respect of COVID lending facilities,” their Friday statement read. “The EFL entered into a debt raise to provide its clubs with access to funds that would support them in dealing with the impact of COVID and, as with any loan, this was subject to a timeframe and eligibility criteria which Derby County was unable to meet.”
Another Championship chairman put it more bluntly. “Lame excuses, blaming everyone but their years of poor management.”
It is worth noting that without the stadium-sale windfall, which gave Derby their first pre-tax profit for a decade, they would have lost £26 million in 2017-18, following losses of £8 million and £15 million in the two previous seasons. Clearly, that adds up to more than the £39 million losses allowed over three years under EFL rules.
Morris responded to the club’s near-miss in the 2018 play-offs by hiring Frank Lampard, signing a dozen players and increasing the wage bill. The following season he hired Phillip Cocu to run the team and added Rooney to the club’s expanding payroll.
The pandemic put a stop to any further extravagance but the club was already burdened with a wage bill it could not sustain in the Championship – League One was not, however, the intended destination.
So it is hardly surprising that sympathy for Derby is rarer in Championship boardrooms than a post-tax profit, and Wycombe Wanderers are none too understanding, either.
They finished in 22nd place, one point behind Derby, and were therefore relegated. It was a one-point margin that Wycombe say cost them £10 million in lost revenue this season, with perhaps another £10 million to come in what their owner Rob Couhig has described as “residual loss”.
For him, whatever sanctions Derby get this season are just another proof of the old adage about justice delayed is justice denied.
Matt Bloomfield, Wycombe’s longest-serving player, offers a dressing-room perspective.
“I was at Ipswich when they went into administration in 2003 and it’s a horrible time for the supporters and a lot of other people associated with the club,” he explains.
“All sorts of people suffer. The florists who provide the flowers on match days. The local butchers where the club buys its meat. Little companies who are owed money and suffer as a consequence. It’s extremely sad because it’s their income and livelihoods that suffer.
“Then there are the supporters who suffer, who don’t know what is happening with their club, these families who have supported their club for generations. No one wins in these situations.
“(But) I feel for our owners because they came in and really supported the club (financially) to get us to the play-offs during the pandemic. They put in everything to try to keep us (in the Championship). That was extremely disappointing considering the backing and the faith they had put in us. Our supporters also never really got to watch us in the Championship.”
There are many in the game who believe Morris needs to start being as honest with himself as Bloomfield.
“This (the decision to enter administration) was done in the interests of the club,” the 65-year-old internet and gaming entrepreneur said on Sunday. “I’m a firm believer that several of the people who were looking to buy this club will now look to buy the club.”
Morris might well have a point — one source told The Athletic “there will still be a queue” now that Derby are in firesale territory — but administration is seldom an easy ride.
It is understood the joint administrators are likely to be Andrew Hosking and Andrew Andronikou of Manchester-based business advisory firm Quantuma. Hosking was the administrator who helped Milton Keynes Dons emerge from the financial wreckage of Wimbledon FC in 2004.
If that was one of English football’s more controversial administrations, perhaps Derby fans will be reassured to find out that Andronikou presided over Portsmouth’s insolvency event in 2010. No? We do not blame you, after all, Portsmouth were back in administration two years later.
English football’s most recent administrations have been at Bolton and Wigan Athletic but this gig is likely to be tougher than both of those. It is very unclear how Hosking and Andronikou, if they are formally appointed this week, are going to fund this salvage job.
As officers of the court, they are legally obliged to pay off the club’s creditors, as best they can, while accruing no further debt. This invariably means job cuts, a forced sale of assets and then a very hard bargain for anyone without watertight security for whatever sum they are owed.
Whatever happens next has to happen fast but Derby have three and a half months before the transfer window opens to allow sales. Even then it will be in a buyer’s market.
Academy graduates Jason Knight, Louie Sibley, Lee Buchanan and Max Bird represent the family silver but this is not a squad brimming with assets. Only two of Saturday’s starting XI — Bird and Sibley — are under contract beyond this season. Old stagers Phil Jagielka and Sam Baldock only have contracts until January.
All the while there are bills to pay. Derby’s next payroll, for players at least, is due at the end of this month. It is understood to be around £2.5 million, almost half of what it once was, and Morris has been footing that ever since the proposed takeovers of Bin Zayed International and Erik Alonso came to nothing.
As well as the £120 million of loans from Morris that sit on Derby’s books, MSD Partners, an investment firm with links to American IT billionaire Michael Dell, has lent the club £20 million, with Pride Park and the training ground used as security. Morris is understood to have also provided the firm with personal guarantees for its money.
Morris has referred to “two or three” credible buyers waiting in the wings — although we have heard that before — and their ability to settle MSD’s debt will be key.
“I still have the stadium,” said Morris. “That’s not going to be something I get recovery on because I want to make sure the club is sold to someone who can move forward on a really good basis.
“I’ll work with the administrators to make sure we get the right purchaser on board and that the deal makes sense from the purchaser’s perspective.”
He was the answer once upon a time and now he is the problem. That is very sad.
Once the game has got over the shock of seeing one of the Football League’s founding members in this mess, it might want to think about why this keeps happening.
Additional contributor: Daniel Taylor
